What happens next? The Ways & Means markup may—may—wrap up today. And Senate Finance Committee Chair Orrin Hatch may release his plan today. But it won’t be a draft bill. Instead, Bloomberg reports that the panel will have only a framework to work with. The committee will have a “conceptual markup” and won’t produce legislative text until it concludes its work. That first draft it’s likely to be very different from the House bill. Hot buttons: the state and local tax deduction, the estate tax, tax treatment of pass-through businesses and families with children, and even the number of tax rates.
CBO has estimated of the cost of the TCJA. The CBO’s “static” score of the House Ways & Means Committee’s Tax Cuts and Jobs Act finds that the bill would add $1.7 trillion to the federal debt over ten years. It includes the Joint Committee on Taxation’s $1.4 trillion estimate of lost revenue and adds the cost of increased interest on the bigger debt. The score does not include macroeconomic effects.
But wait, there’s more. The House Ways & Means Committee added to the bill’s cost by gutting a proposed excise tax on payments from US entities to their foreign subsidiaries. That tax would have generated $154.5 billion in revenue over the next 10 years, but now would bring in only $6.5 billion over the same time period. The change would increase the bill’s overall revenue loss which becomes $1.57 trillion over the next 10 years.
TPC: The TCJA would raise taxes on 7 percent of taxpayers in 2018. And about 25 percent would pay more in 2027, according to the TPC’s distributional analysis of the bill as it stood on November 3. TPC’s Howard Gleckman explains that by 2027, about 31 percent of middle-income households would pay an average of $1,150 more in taxes than under current law. Two-thirds would still get a tax cut, averaging the same $1,100 as in 2017. Among the top 1 percent, two-thirds would pay an average of $123,000 less, and one-third would pay an average of $62,000 more. “The bill now being debated by the House Ways & Means Committee would fall far short of President Trump’s promise of an historic tax cut. Indeed, for many, it would mean a higher income tax bill, especially over time.”
For example, a lower pass-through rate under TCJA helps rich investors, not small businesses. TPC’s Steve Rosenthal explains the TCJA’s promise to cap the income tax rate at 25 percent for pass-through businesses. Sounds simple, but the real story is much more complicated. Steve shows how “the provision is likely to become a windfall for high-income investors, while many genuine business owners, including some small business owners, will end up paying a top rate as high as 35.22 percent.”
And what about the corporate rate cut? Some senators want to delay the rate reduction to make the bill look less expensive inside the 10-year budget window. And Treasury Secretary Steven Mnuchin didn’t exactly sink the idea. He told Bloomberg TV that it is the administration’s “strong preference” to start the rate cut next year. But that seems to leave wiggle room.
Will the week’s election results alter prospects for tax reform? GOP losses around the country could alter tax reform policy. House Speaker Paul Ryan says it increases the urgency of getting tax reform done as soon as possible. But others wonder if Republicans up for reelection in 2018 will still have the stomach to repeal popular tax breaks.
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